L’Oreal Company Operation Management Systems

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L'Oreal Company Operation Management Systems



Table of Contents

Executive summary

1. Brief history

2. SWOT Analysis

3. OM Decisions

3.1 Goods and Service Design

3.2 Quality

3.3 Supply Chain

Problems and Reccomendations

References



Executive summary

L'Oreal is the world leader in cosmetics, is well underway in implementing an integrated operations management solution across all its factories and offices worldwide. L'Oreal feels this positions the company as a leading global IT user, both in terms of technology and user-friendliness. To reap benefits early, while reducing risk and cost, L'Oreal has implemented OM decisions in an integrated manner, site by site, using a common “core” model. This model allows L'Oreal to capture best practices in supply chain management (including operational logistics), production management, and quality management and drive operational excellence uniformly through the organization by implementing both the applications and the practices on each site worldwide.

L'Oreal has been built around fundamental values which have guided them throughout the life of the company, and continue to do so today. Their values have shaped culture and they underpin their reputation.

L'Oreal implements their OM decisions as a responsibility to follow which drive theirs integrity and ethical standards. They believe that their commitment to live up there powerful values and to demonstrate their high value standards in all they do, will ensure more than ever that L'Oreal is seen as an exemplary organization: one that inspires trust and respect.

The purpose of the project is to apply the concepts and frameworks learned in the course to a real company and see how it works. For better understanding of the subject and main principals that were learned through the course. L'Oreal Company was chosen because of its global presence with the highest technologies, high level of operation management and continues improvement.



1. Brief history

For the past century, L'Oreal has pursued its adventure in the beauty industry to cement its position as the world's leading cosmetic company. Before the facial cosmetics, L'Oreal was known as a hair-color formula developed by French chemist Eugene Schueller in 1907. It was then known as "Aureole". Schueller formulated and manufactured his own products which were sold to Parisian hairdressers. It was only in 1909 that Schueller registered his company as "Societe Francaise de Teintures Inoffensives pour Cheveus,” the future L'Oreal. Scheuller began exporting his products, which was then limited to hair-coloring products. Through agents and consignments, Scheuller further distributed his products in the United States of America, South America, Russia and the Far East. The L'Oreal Group is present worldwide through its subsidiaries and agents. L'Oreal started to expand its products from hair-color to other cleansing and beauty products.

The L'Oreal Group today markets over 24 brands and more than 2,000 products in the various sectors of the beauty business. Such includes hair colors, styling aids, body and skincare, cleansers and fragrances. Indeed, the L'Oreal Group has reached the peak that all cosmetic brands sought after.

The main differentiation of the L'Oreal Paris Company is dividing its business into 4 divisions:

- L'Oreal Professionnel with such brands as: Redken, Matrix, Kerastase, in hairdressing salons

- Mass Market Division with such brands as: L'Oreal Paris, Garnier, Maybelline in supermarkets

- Luxury Division: Lancome, Helena Rubinstein, Biotherm, Kiehl's, Shu Uemura, Ralph Lauren Parfums, Giorgio Armani and Cacharel Parfums in luxury market

- Active Cosmetics Division: Vichy, La Roche-Posay in pharmacies.

L'Oreal Kazakhstan was founded in 2006 as affiliated representative office of L'Oreal Ukrain. In 2009 the L'Oreal International took a decision to open the official subsidiary LLP “L'Oreal Kazakhstan”. In Kazakhstan L'Oreal presented with mass market, luxury and active cosmetic (starting from 2012) divisions.



2. SWOT Analysis

Internal Analysis

1. Strengths 

The ongoing success of the L'Oreal Group is without if not for the ingenuity of the concept of their vision as a team. L'Oreal CEO considers passion as the key to the well-renowned accomplishment of the Company. The primary strength of the Company is the continuing research and innovation in the interest of beauty which assures that the L'Oreal Cosmetics offers the best to their consumers. Their dedication to their continuous research makes them the leader in the growing cosmetics industry despite the competition in the market.

One more strength of the L'Oreal is the developed activities in the field of cosmetics as well as in the dermatological and pharmaceutical fields in order to put more concentration in their particular activities. To further add to the enumerated strengths of the company, L'Oreal's advertising strategy also plays a major part to its growth. Through adapting to the culture of their target market as the main tool of their advertisement, the Company brought L'Oreal products within reach of other women from different parts of the world.

2. Weaknesses

Perhaps one of the weaknesses that a big company faces is the decentralized organizational structure. This is also part of the difficulties that L'Oreal is facing. Due to the many subdivisions of the Company, there is also the difficulty in the control of L'Oreal. This slows down the production of the Company because of the need of giving reference to the other Board members and directors of the Company. L'Oreal also have a difficulty in finding out what division is accountable for the possible pitfalls of the Company. Another weakness that L'Oreal faces is their profit. The profit margin of L'Oreal is comparably low than that of the other smaller rivals. While L'Oreal projects certain rise in digits as their profit, the result does not usually meet the expectations. Perhaps, this is also due to the high-end advertising and marketing as well as the width of the Company. Finally, the coordination and the control of the activities and image in the worldwide market are also viewed as a weakness in the part of L'Oreal. Due to its worldwide marketing strategy, there are also dissimilarities brought about in the campaign of L'Oreal products as to what image they are to project.

External Analysis

1. Opportunities

The L'Oreal Company concentrates on cosmetic products that enhance women of all ages. The growing demand for beauty products gives L'Oreal the opportunity to focus in their field of specialization, particularly on hair styling and color, skincare, cosmetics and perfumeries. Being the leading cosmetic brand gives them the edge for their well-known image. Opportunity also emanates from their growing market that ranges from the affluent, the aging and also the masses of the developed countries. Another opportunity that L'Oreal must take advantage of is their greater market share because of the numerous patents registered by the Company. This enables them to have the top of the line products only to their name and therefore would lead costumers only to them for they could not find any of the cosmetics in other brands.

2. Threats

A threat to the L'Oreal group is also the growing competition within the field of cosmetic brands. Due to the ongoing addition to the field of cosmetics, there is still the danger that other brands could surpass the profit of L'Oreal. Another threat to the Company is the economic downturn that is quite evident in other countries. Such could thus hurt the possibility of higher profit for the company. Most products of L'Oreal are within the reach of the citizens of developed countries, but L'Oreal may have problems reaching out even to the average people from the underdeveloped countries. Also a threat to the L'Oreal is the spending habits of consumer and the economic crunch that most countries are experiencing as of present. While the L'Oreal may be producing the best of its line, people may find that their products are not of their basic needs and would skip buying L'Oreal products. However, with the growth of the market, the damage could be far from taking place.



3. OM Decisions

3.1 Goods and Service Design

As the brand market leader L'oreal heavily invests in R&D and focuses on development of the goods design. L'Oreal cares about developing products that meet specific needs of their customers.

The success of their products is based on the scientific concept, which is proven to be internationally recognized for its skin and hair behavior.

Motto of the L'Oreal: Creativity and Differentiation. Differentiation is the key success of L'Oreal. Providing huge range of cosmetics like Hair Care, Skin Care and Make-up cosmetics and dividing them into the range of Consumer Products, Professional Products, Luxury Products and Active cosmetics made the brand name worldwide known and become the market leader in cosmetics industry. And to all of the branches of the company a heavy R&D investment is made.

Product life cycle management relies on the continuous interaction of marketing and R&D departments.

Product design is divided into 4 steps of clinical evaluation process:

Sensory analysis

This step includes qualitative and quantitative data and being used in development by in-house experts.

Cosmeto-Clinical Trials

This step was especially designed by dermatologists and experts of L'oreal and is measured by the validated scoring system according to rules in the pharmaceutical industry. In this step data is analyzed and products are classified according to their comfort and efficacy.

Consumer Large-Scale Test

These test are obligatory before the launch of the product. Test are conducted on the special group of random customers in major marketing countries (USA, Europe,Japan etc.) and specific subgroups are included such as sensitive/combined skin.

Cosmetovigilance

The term “Cosmetovigilance” in L'Oreal Cosmetics describes the issue when the product is being monitored through a special department to ensure that product is safe to use, even though the brand is leading in cosmetics industry there is always a risk of unexpected skin reactions when a large number of goods is produced.

L'Oreal R&D Department is mainly located in France, but in order to better adapt the products to the local markets , support laboratories are conducted in major market regions like USA and Japan.

L'oreal pays a lot of attention to the environmental issues, so all of the packaging for the products is enviro-friendly. In order to keep up the rank of the worldwide brand, L'oreal has set up strict requirements for the suppliers of the packaging. It is to be innovative and recyclable.

3.2 Quality

Quality and Safety were priorities of L'Oreal cosmetics at all times.

Quality of the products is being monitored by external and internal audits which are conducted by organizations such as European Cosmetic Directive in Europe and Food and Drug Administration in USA. According to the international quality safety standards L'Oreal is exceeds the legal obligation for product safety in each of the country it is produced.

88% of the cosmetic products are certified with ISO 9001/2000. L'Oreal quality system is confident with the fact that all of the products in turnover are complied with the same strict standards in every part of the world.

Before the dispatch of the product each step is monitored from the reception of raw materials to manufacturing and packaging.

Product safety monitoring is divided into 6 steps:

Review of the available safety information on the ingredients

Safety of the ingredient in the context of the finished product

Approving safe concentrations of the ingredient

Safety testing of the finished product

Safety Validations of the finished product

Product-Launch and Post-Market Surveillance

This safety and quality approval show us the perfect use of the PDCA model. Plan is the quality standard of the good and covers steps 1-2; Do is the implementation of the safety control on the steps 3-4; Check point is the Safety Validations of the Finished product; and Act is perfectly applied in step of the Post-Market Surveillance which gives the opportunity to response rapidly to the recommendations of the customers and take corrective actions.

Workplace safety and Environmental standards are also the checkpoint of L'Oreal. For the past years L'Oreal took actions in improvement of the Environmental safety and Industrial Hygiene.

L'Oreal upmost issue of the environmental safety led to the launch of the Eco-Responsible Business Model. Environmental, Occupational Health and Safety management systems including ISO 14001, OHSAS 18001 and OSHA VPP in the United States are the certifications which are complied with L'Oreal. 90% of the factories are also complied with the OHSAS 18001 for safety at the workplace.

In April 2009 L'Oreal has pointed out 3 main resolutions for the production till the year 2015. These are:

Halve Green House emissions

Halve its water use per unit of the finished product

Halve its waste generated per unit of the finished product

Over the past years L'Oreal reduced its water use by 3.8%, reduced total CO2 emissions by 6.6% and r3educed waste per finished product by 0.5%, and also increasing the recycle rate to 95%.



3.3 Supply Chain

management distributor l'oreal cosmetic

Supplier and distributor selection

L'Oreal relationship with its suppliers and distributors extends beyond the purchase and deliver of goods and services. It is integral to the long- term success of the business. L'Oreal stands for they are judged by quality of the partnership with their suppliers and distributors, also called partners.

The principal of selecting of partners (distributors and suppliers) are following:

Select partners on the basis of open competitive bidding based on objective criteria for evaluating performance and quality of service; ensure that partners offers are compared and considered fairly and without favoritism.

Be transparent about the bidding process and give honest, sensitive feedback to failed bids.

Provide feedback to partners based on objective, transparent and consistent indicators.

Support partners in meeting L'Oreal's expectations - but have the courage to end the relationship with those partners who persistently fail to meet them

Pay partners on time and according to the agreed terms.

Make sure that the partner is not overly dependent on L'Oreal's business.

Refrain from asking suppliers to make unreasonable concessions in order to win or retain business with L'Oreal. In particular, avoid reciprocal dealing.

Protect the partner's confidential information as if it were their own, in particular making sure that they respect their copyright and intellectual property.

So, this is the main rules and principals in choosing new distributor or supplier. L'Oreal don't make difference if the company big or small, international or local, the most important if company meets all expectations.

L'Oreal works with 3 different distributors, who takes products from the main warehouse and delivers it to all regions, they are: Ak Erke who works in North, East and Almaty regions with L'Oreal brand, Altyn Alma who works in South and Almaty regions with Garnier brand and Cosmeta Asia who works in West region with all brands. This diversification made in order to make business and volume of the work lightly.

L'Oreal Supply Chain Operations Reference Model is based on 5 core processes:

The main supply chain is divided into “Domains” of purchasing materials:

Raw Materials: materials are purchased according to various technical groups such as polymers, fats, natural products, perfumes, vitamins etc.

Packaging: as it was mentioned before, L'Oreal purchases enviro-friendly and innovative packaging materials

POS/Promo: Point of Sales and Promotion items are summed up to the division of that requires creativity, competitiveness, innovation and discipline.

Equipment: suppliers divided into 3 categories Utilities, Manufacturing Equipment and Packaging Machines.

Indirect Purchasing: Covers up HR, Intellectual services, energy, IT and telecommunication, logistics and marketing services.

Contract Manufacturing: packaging of finishing finished products, manufacturing specific finished products, logistics.

To make it more clear, the picture below shows the relationship within L'Oreal. It is seen that 3 supply chains are in the production process , and the flow of suppliers is integrated horizontally.

These 3 chains are common organizations with common targets oriented to customers. Manufacturing Supply Chain, Market Supply Logistics and PI Team and Customer Supply Chain sum up the DGO (Directorate General Operations). Furthermore the DGO splits up into 2 departments: DGT (Directorate General Technical) and DGAF (DG Administration and Finance).

L'Oreal manufacturing by zone and division



Active cosmetic division (ACD)

Consumer Product Division (CPD)

L'Oreal Luxury Division (LLD)

Professional Product Division (PPD)

As it is seen L'Oreal is divided into 5 region markets and 5 divisions of production. North America and Europe are the lead suppliers of LLD and PPD products because of the higher turnover in these regions, vv is Latin Amrecia, Africa & Middle East and Asia Pacific. These regions are more concentrated on ACD and CPD despite the fact that it is multi-task zone.

The map above show the information flow between headquarters in Paris and New Jersey, and production flow from North America zone to Europe market. As it is seen, the most of the information flow is centralized in Europe headquarter but the production process output is conducted in North America.

The Mission of Customer Supply Chain:

Main Mission: Manage the Demand

Forecast Sales

Plan and Control Supplies

Manage Local Subcontracting

Collect the Cash Customer Care

Develop Services to Trade Partners

Ensure Physical Execution



Problems and Recommendations

One of the real time problems of L'Oreal Cosmetics are Near-real-time issue. On the basis of warehouse management central services could not ensure the availability of L'Oreal dynamic supply chain. It requires flawless material movement without any delays that could cause the reduction in production process and profit. It also requires non-stop communication and between all of the supply chains, warehouse management and operations management and all of the market zones. In order to eliminate this problem it is better to reconsider vendor selection process. Also logistic functions at OM need to be real-time 24x7 integrated with the warehouse and distribution process.



References

1. Dermatology News http://www.island-derm.com/blog/dermatology-news/dermatology-news-is-now-able-to-reveal-that-new-york-city-dermatologist-bdh

2. Consistent Quality http://www.loreal.com/_en/_ww/html/our-company/operations/consistent-quality-worldwide.aspx

3. L'oreal Going Green http://www.corporateregister.com/news/item/?n=51

4. L'Oreal Suppliers http://www.loreal.com/_en/_ww/HTML/suppliers/index.aspx

5. L'Oreal Valueshttp://www.loreal.com/_en/_ww/html/suppliers/values-partnership/values-logistic.aspx

6. L'Oreal supplier performancehttp://www.loreal.com/_en/_ww/HTML/suppliers/suppliers-performance/index.aspx

7. L'oreal Wikipediahttp://en.wikipedia.org/wiki/L'Or%C3%A9al#Head_office

8. L'Oreal Research http://www.loreal.cz/_cs/_cz/research/homeres.aspx

9. L'Orealhttp://www.loreal-finance.com/_docs/fichiers_contenu/0000000468/Presentation_JPAGON_2009_02_17_UK.pdf

10. L'Oreal R&D http://www.loreal.com/_en/_ww/loreal-partners/rd_process.aspx?

11. Product Development http://www.coursework4you.co.uk/essays-and-dissertations/sample85.php

12. SWOT http://loreal.exteen.com/20080805/swot-analysis-l-oreal

13. Diversification http://www.slideshare.net/rikuwa/diversification-of-loreal

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